The euro and the pound outperformed other currencies in Friday’s European session, while dollar traders looked beyond disappointing US GDP figures to drive it higher versus the yen.

The euro rebounded sharply from yesterday’s ECB-induced losses after stronger-than-expected inflation data for the Eurozone revived expectations that the ECB may soon begin to withdraw monetary accommodation. Headline inflation jumped from 1.5% to 1.9% year-on-year in April according to the flash estimates, just shy of February’s four-year high of 2.0% and above expectations of 1.8%. More importantly though, core CPI also moved closer to the ECB’s target as it rose to 1.2% in April from 0.8% in March. This was above forecasts of 1.0% and the highest since September 2013.

The data reinforces the growing view that the ECB may soon start preparing the ground for scaling back its massive stimulus program despite Mario Draghi’s insistence at the press conference that followed the ECB meeting yesterday that inflation has yet to show a convincing upward trend.

The single currency rose back towards 5½-month peaks following the latest CPI figures for the Eurozone, hitting a session-high of 1.0947 dollars. Further supporting the euro today were better-than-expected retail sales numbers out of Germany. In addition, there was some relief from the French GDP numbers, which although first quarter growth came in slightly below forecasts at 0.3% quarter-on-quarter, there appeared to be little negative impact from the French presidential election on economic activity.

The pound meanwhile extended its weekly gains to hit a 7-month high of 1.2956 dollars in European trading as investors were encouraged by UK PM Theresa May’s efforts to set a positive tone with the EU ahead of the Brexit negotiations. Sterling was also higher against the yen and hit a 3-month high of 144.34 yen, but came under pressure against the euro, which firmed to 0.8440 pounds.

Traders shrugged off disappointing GDP data out of the UK today. British economic growth slowed to 0.3% q/q in the first three months of the year, down from 0.7% in the fourth quarter, as UK consumers turned more cautious. Growth quickened though on a 12-month basis, from 1.9% to 2.1%. Expectations were for growth of 0.4% q/q and 2.2% y/y.

Preliminary GDP estimates for the first quarter were also released in the United States. Annualized growth in the first three months slowed to 0.7%, missing expectations of 1.2% and down from 2.1% in the fourth quarter. However, investors ignored the marked slowdown in consumer spending to focus on the bigger-than-expected increase in employment costs and in the PCE price index, which point to rising inflationary pressures. Employment costs were up 0.8% in the first quarter versus forecasts of 0.6%, while the PCE price index (an alternative measure of inflation) rose by 2.4% instead of the expected 2.3%.

Further supporting the dollar today was a stronger-than-expected reading for the Chicago PMI. The manufacturing gauge for the Chicago region rose from 57.7 to 58.3 in April, beating estimates of 56.4. But the University of Michigan’s consumer confidence index wasn’t so positive as the final reading for April was revised down from 98.0 to 97.0.

The dollar briefly dipped by about 20 pips after the data from around 111.50 yen, before setting a fresh 4-week high of 111.71 yen in late session. However, the dollar index fell back towards 5½-month lows, hitting a session low of 98.72 as the stronger euro and pound weighed on the trade-weighted index.

In other data, Canadian monthly GDP figures and producer prices did little to boost the battered loonie. The greenback set fresh 14-month highs against its Canadian counterpart to rise to 1.3680 in late session. Canadian growth was flat in February, after expanding by 0.6% month-on-month in January, while producer prices rose for the seventh straight month in March and were up by 5.1% compared to a year ago.

The Canadian dollar has come under pressure this week amid rising tensions between Canada and the US over trade policy. Higher oil prices were also unable to lift the loonie. Optimism of an extension to OPEC/non-OPEC’s output deal pulled WTI oil away from yesterday’s one-month lows to around $49.50 a barrel in European trading today.

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